Paying a driver on a 1099

Discussion in 'Trucker Taxes and Truck Financing' started by Oscar the KW, Nov 26, 2013.

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  1. G/MAN

    G/MAN Road Train Member

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    Just so you know, laws are not written for things that are legal. Laws are written to show what is illegal. You cannot prove something is legal. You can only prove that something is illegal by showing the statute. So far, you have only previously posted guidelines given by the IRS. In case you don't know it, congress is responsible for drafting laws, not the IRS. You make a lot of assumptions based upon your personal opinions. You keep mentioning about being an enrolled gent to practice before the IRS. If that is the case, then why are you spending time on a trucking forum instead of doing accounting or tax returns?

    I am not saying whether anyone should pay on a W2 or 1099. That is up to the individual or company owner as to how they want to pay their people.
    If anyone want to know whether they can or should pay on a 1099, then the best thing that they can do is find a good CPA that is familiar with trucking and ask them their advice. There are guidelines that are published by the IRS, but there is a fine line in this business, according to what I have been told by an IRS agent in my home town. No one needs to take my word or yours as to whether it is legal. So far, you have expressed your personal opinion as have I. My opinion is based upon my personal experience of being paid on a 1099 and speaking with a local IRS agent. The original poster asked whether it was illegal to pay on a 1099. The answer is NO. It is not illegal. However, it may be best to pay on a W2 rather than a 1099, depending on your business model.

    Remember, this is a trucking forum, not a tax forum. You can receive different opinions on a trucking forum. You can also receive different opinions from the IRS and they are supposed to know. Asking someone whom you trust who deals with this on a daily basis would be the best advice. There are a number of drivers on this forum who are being paid on a 1099 and have never had a problem with the IRS.
     
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  3. G/MAN

    G/MAN Road Train Member

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    Whether a company is required to furnish workers comp varies from state to state. It usually depends on the number of employees. A company can require that a driver purchase an occupational accident policy instead of workers comp.
     
  4. Roadmedic

    Roadmedic Road Train Member

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    You can lead a horse to water, but you cannot make him drink.


    I stand behind my statements and facts.

    I have responsibility to provide the correct information.

    You are definately not one to call the IRS and actually tell them the facts of your situation and be 100% sure they would do nothing.

    I am sure of that.



    I am sure if it was "legal" FEDEX would not be requiring all of the contractors to be corporations.

    They had bigger pockets than you.

    http://www.reuters.com/article/2007/12/22/us-fedex-irs-idUSN2129616020071222


    [h=1]IRS says Fedex owes $319 mln in back taxes: filing[/h] LOS ANGELES Fri Dec 21, 2007 9:30pm EST

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    (Reuters) - Fedex Corp (FDX.N) said on Friday that the U.S. Internal Revenue Service found that its FedEx Ground independent contractors should be reclassified as employees for tax purposes and that the company faced related taxes and penalties of more than $319 million for 2002.
    The IRS is auditing similar issues for 2004 through 2006, the package delivery company said in the filing with the U.S. Securities and Exchange Commission.
    "Given the preliminary status of this matter, we cannot yet determine the amount or a reasonable range of potential loss. However, we do not believe that any loss is probable," Fedex said in the filing.
    The International Brotherhood of Teamsters, which has asserted FedEx Ground workers are in fact employees and which is campaigning to unionize FedEx Ground drivers, welcomed the IRS decision.
    "It's game over for FedEx's independent contractor scam," union President Jim Hoffa said in a statement.
    The union said penalties against FedEx could eventually top $1 billion, since the current penalty only covers the year 2002.
    FedEx said that it has "strong defenses to the IRS's tentative assessment and will vigorously defend" its position that FedEx Ground's owner-operators are independent contractors.
    The filing came a day after Memphis, Tenn.-based FedEx warned that it faces "increase regulatory and legal uncertainty" over the independent contractor model it uses at FedEx Ground, which could result in higher costs..
    FedEx Ground uses 15,000 drivers who are paid as independent contractors. Under this system, FedEx Ground drivers can own multiple routes, employing other drivers to deliver packages. Investors like the model because it helps FedEx save money and compete against main rival United Parcel Service Inc (UPS.N) and its unionized work force.
    But the FedEx Ground model has faced challenges.
    Lawsuits filed in 36 U.S. states claim the control FedEx Ground exercises over its contractors makes them employees, with a right to benefits and a refund for buying their trucks.
    FedEx shares rose 66 cents, or 0.7 percent, to close at $94.29 on the New York Stock Exchange.
    (Reporting by Julie Vorman in Washington, Nichola Groom in Los Angeles, Nick Zieminski in New York; Editing by Leslie Gevirtz, Gary Hill)
     
  5. Roadmedic

    Roadmedic Road Train Member

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    http://www.americanbar.org/newsletter/publications/youraba/201107article05.html


    Employee misclassification can lead to big penalties for employers
    Employee misclassification is becoming an increasingly large problem for employers, workers and the government. By some estimates, contingent or temporary workers could reach 30-50 percent of the U.S. workforce. A federal study contends that an estimated 3.4 million employees are classified as independent contractors when they should be reported as employees. A 2009 study by the treasury inspector general estimated that misclassification costs the United States $54 billion in underpayment of employment taxes and $15 billion in unpaid FICA and unemployment taxes.
    With pressure to reduce the federal deficit, the Obama administration has made retrieving tax revenues from employers who misclassify their workers a top priority, requesting $45.8 million and 129 full-time employees for the new multi-agency Misclassification Initiative.
    Labor Secretary Hilda Solis testified before a House appropriations committee with the goal of leveling the playing field for employers who abide by the law and providing workers with their rightful pay and benefits. “Our efforts to recover lost wages not only help workers make ends meet in hard times, but can bolster the economy, since back wages amount to new resources to low-income workers who spend most of the money they have earned.”
    Addressing the complexity of the issue as well as the pitfalls of using independent contractors, the Section of Labor and Employment Law recently presented the in-person program,“You Don’t Own Me…Or Do You?”
    Back to top
    To underscore the perils of misclassification for employers, panelists recapped several high-profile cases: Vizcaino v. Microsoft, which resulted in a settlement of $97 million; Estrada v. FedEx, which brought a verdict for drivers, $5 million compensation and $13 million in attorneys’ fees; and another one involving FedEx, where the IRS found the company misclassified employees, owed $319 million in back taxes and penalties for tax years 2004-2006, which was later rescinded after an appeal by company. However, the IRS did find that the drivers were employees of the company, which may result in tax liability for future years.
    Program panelist Clayton Halunen of Halunen & Associates of Minneapolis, an employment and consumer litigator who is nationally known for his work in misclassification cases, cautioned, “Once the IRS gets involved, their audit procedure is very intense. FedEx was under investigation for years.”
    Halunen added, “The single greatest potential liability to any company that misclassifies independent contractors is the state and federal tax obligations that may result.”
    Panelist Nora Macey of Macey, Swanson & Allman in Indianapolis pointed out that it’s not just labor and employment lawyers who are dealing with misclassification issues. “The misclassification issue is not going to be solved in the labor and employment law realm. It’s going to be solved in the tax realm, because suddenly the IRS has figured out how much money it’s losing by routine misclassification.”
    Under the National Labor Relations Act, “independent contractors” are excluded from the definition of “employees.” Unions have no right to organize or represent independent contractors and employers have no duty to bargain over their working conditions.
    Employers in unionized environments should consider:

    • A union may claim temporary/contract workers as part of its bargaining unit;
    • A union may claim that use of temporary or contract workers violates the union contract;
    • The union and client employer may negotiate language to cover the use of temporary workers—limitations and representation;
    • Unhappy union workers are not typical unhappy workers: they have resources and support;
    • If the staffing relationship is long-term and profitable, the client and staffing employers can consent to a union’s joint representation of client and staffing employees.
    Using leased workers may benefit a company uncertain about its future growth since training, human resources and payroll are often handled by the staffing firm. Leased workers may cost less than hiring regular employees, since most of them do not receive other employment benefits, such as health insurance, pension, paid sick leave, etc.
    Back to top
    Panelist Ann Fromholz, who was senior counsel in the Corporate, Employment & Procurement group of ConocoPhillips’ legal department, cautioned, “When you’re representing an employer, look at the staffing companies and make sure the workers they’re sending you are W-2 employees and not independent contractors of that company.” There may also be a risk that the staffing companies or agencies providing independent contractors may have misclassified their own workers.
    Using temporary and leased workers can create a joint employment relationship, which means potential legal exposure for the engaging company—particularly when it comes to harassment, discrimination and retaliation claims. Fromholz’s advice to employers is to engage in the same care of the contractors as you do with your own employees. When you want to “fire” or remove a contract employee, call up the company and have the company remove its worker, she said.
    When it comes to harassment, employers need to make sure their lease workers know what the policy is, but training on the topic should be done by the staffing company.
    The best way to handle discrimination claims is a good indemnification agreement. Fromholz advises employers to make sure the staffing company has the resources to indemnify them.
    There are also risks involving the Family Medical Leave Act. If a contractor is denied a request for leave that would otherwise be covered by the FMLA, and later proves that she was actually an “employee,” the employers may have interfered with FMLA rights. Approving FMLA leave should be handled by the staffing agency. If a temporary worker requests FMLA leave directly from an employer, the request should be communicated back to the staffing agency.
    A measure pending before the U.S. Senate—the Payroll Fraud Prevention Act—is intended to prevent misclassification by implementing record-keeping requirements for employers. Fines of up to $5,000 and penalties would compel compliance.
     
  6. Roadmedic

    Roadmedic Road Train Member

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    Interesting thought. It only took a few minutes to find these 2 and many, many more.



    http://minnesota.publicradio.org/display/web/2013/03/22/labor/employees-misclassified-contractors

    [h=1]Employees misclassified as contractors can cost firms a bundle[/h]




    ST. PAUL, Minn. — In the wake of the Great Recession, many employers are choosing to use independent contractors instead of hiring permanent employees.

    Doing so can produce big cost savings for employers because they typically don't have to pay for health benefits, overtime or certain taxes. From workers' perspectives, there are advantages, too. Contract work might allow them to get a foot in the door of a company that otherwise wouldn't hire them and earn more money on an hourly basis than in a salaried job.
    But this arrangement, if mishandled, can carry a steep price for companies. The U.S. Department of Labor and the Internal Revenue Service are investigating businesses that misclassify workers as contractors. Some workers have filed lawsuits that allege businesses denied them benefits by wrongly classifying them as contractors.
    "In some cases, employers are aggressively fighting these claims because the downside of an adverse decision could be quite significant," said Chuck Knapp, a Minneapolis lawyer who represents companies on worker classification issues. "The amount of fines or liability or settlement you see ranges from thousands to millions."
    The cases center on the question of what makes a worker an employee or contractor.
    Knapp said the distinction generally has to do with the level of control the employer exerts. A worker who must work set hours and perform the work in a particular way looks a lot like an employee. If the worker decides when and how the work is to be done and is at liberty to subcontract the work to another person, courts would likely consider the person a contractor.
    "There is no standard definition," said Matthew Bidwell, a professor of management at the Wharton School of Business at the University of Pennsylvania. "There is no one test. It's never clear who's a contractor and who isn't. It's a very murky question in and of itself."
    "There is no standard definition. There is no one test. It's never clear who's a contractor and who isn't. It's a very murky question in and of itself."
    - Matthew Bidwell, Wharton School of Business at University of Pennsylvania

    These vague distinctions have proven troublesome for a Twin Cities woman hired as a contractor to build a database and perform other tasks for a local company. The woman, whose first name is Rebekah, agreed to speak of her former client, but did not want to be identified by her full name because she fears that could jeopardize her employment prospects.
    For Rebekah, the tip-off that something was amiss came at tax time, when her accountant tried to determine what deductions she could claim from her contract work.
    When the accountant asked if the company provided Rebekah with clients, determined her work hours, gave her a place to work and told her when to arrive and what to do, she could only answer "yes."
    That, the accountant said, made Rebekah an employee.
    One of the taxes that employers pay on their employees' behalf funds unemployment insurance. Except in some circumstances where it's provided by an employment agency, unemployment is typically not available to contractors when their work is done.
    But given the questions her accountant raised, Rebekah nevertheless filed for jobless benefits. The Minnesota Department of Employment and Economic Development turned her down, effectively agreeing with the company Rebekah worked for that she was just a contractor, not an employee.
    Her accountant disagrees and still plans to report the company to the IRS.
    Knapp, of the Minneapolis law firm Faegre Baker Daniels, notes that under the Obama administration, the Department of Labor and the IRS are collaborating with Minnesota and several other states to police the misclassification of workers as contractors. Last year, federal officials won a settlement with a landscaping company in Shakopee. The firm had to pay about $500,000 in retroactive overtime pay and penalties.
    A lawyer for the landscaping firm declined to comment on the case and said the proprietors wouldn't either.
    The Department of Labor would not provide a list of other companies in Minnesota that it has investigated.
    Despite the government's focus, Knapp said the real heat is coming from class action lawsuits, which have been on the rise. One of the most famous cases involves the tech giant Microsoft. In the 90's, the company agreed to pay $97 million to settle a suit brought by workers wrongly classified as independent contractors.
    FedEx has already paid out millions of dollars in several settlements. One lawsuit involves nearly 30,000 drivers. If it succeeds, the settlement could be massive. However, a judge has ruled that drivers from most of the states covered by the class-action suit were not misclassified as contractors. That ruling is on appeal.
    The increased threat of litigation is causing big headaches for employers, said Ann Costello, an executive recruiter with Venteon Finance in Edina, Minn. After the job cuts of the Great Recession, many firms are hesitant to add permanent positions.
    "They're afraid to hire someone, because they don't want to end up laying someone off again in six months," Costello said. "And a contractor-- they're there temporarily."
    Recruiters and employment lawyers say some firms are trying to work around the legal grey zone of contract work by procuring their contractors through a third party. Others might set "term limits" on contractors, limiting their work to a set period of time, such as 12 months. The longer a worker is employed, the more their conditions of employment might align with those of a payroll employee.
    It's unclear if the increased scrutiny around contractors is keeping companies from hiring contractors altogether.
    For people like Rebekah, contract work is still abundant, whereas permanent jobs are not.
    "You've got to take what comes at ya, and contract work is there," she said.
    That said, Rebekah said she would not return to the company that she believes took advantage of her contractor status to save money at her expense.
     
  7. G/MAN

    G/MAN Road Train Member

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    These cases are more about corruption in a union pushing their agenda with a corrupt administration. Neither should have been considered employees. I do know that the IRS has been trying to find a way to force carriers to classify owner operators as employees. You cn be assured that it will meet strong resistance from owner operators should they continue their corrupt practice. Were it not for the unions neither of these cases would have even seen the light of day. The unions would like for these people to be considered employees so that they can increase their membership. That is many millions of dollars in dues. These are isolated instances where there is much corruption. Appeals are likely to go on for years and the union and IRS may or may not prevail in the end. If these people are successful, you can expect more to use third parties to secure workers and wages to be much lower. You still have yet to prove that it is illegal to pay on a 1099.
     
  8. Roadmedic

    Roadmedic Road Train Member

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    The second one has absolutely nothing to do with a union. I posted it to show you that I am not the only tax preparer who would contact the IRS on a client's return where they are paid incorrectly.

    The fedex case started not by the union. The union has an interest in it. The IRS has lost the 2004, but it still after the other years.

    Now, as I stated, if it was truly legal, you really think the deep pockets of FEDEX would have backed away and changed their practice and require them to be corporations.

    Keep paying the way you are. It makes no difference to me.

    The only reason I post on this is to educate those that are mislead by such postings.

    You have blinders on and cannot see that this is a hot issue that has been expanding each and every year. I get mailings on this from the accounting companies and tax companies I deal with and am members with.

    Like I said, Bring a horse to water and you cannot make it drink.


    So, you are on your own, but I will continue to try and educate the others who are not going to be learning a fool's lesson if caught.
     
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  9. G/MAN

    G/MAN Road Train Member

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    Anyone who would take someone's money to provide a service and then turn them into those whom you were paid to protect them is the worst type of ethical violation.

    You assume that I pay drivers on a 1099, even though I never stated how I pay them or even if I currently have any drivers. FedEx most likely found that it was easier and less expensive to make changes than continue doing business as before. I hope that they are successful in fighting the IRS on these issues.
     
    Last edited: Dec 1, 2013
  10. Roadmedic

    Roadmedic Road Train Member

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    We are not turning in our clients.

    You do not know the ethics laws preparers must deal with.
     
  11. CondoCruiser

    CondoCruiser The Legend

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    If it was legal mega carriers would be paying with a 1099 in a heartbeat. We all know the tricks they play to save a dime. Why aren't they playing that trick? Because they can't. The only ones you see doing it are the little guys that fly under the radar. Again the IRS's computer can't flag everyone on a 1099. It's a wasted effort. Only 1% of all businesses get audited. An employee that gets a 1099 is not in trouble for anything as long as he pays his taxes. The one that gets in trouble is the employer. He's the one dodging the FICA match.

    Driving jobs are a dime a dozen. Why a company driver thinks a 1099 is a great idea I'll never understand. The one that doesn't plan for the future is a fool.

    I don't think anyone is winning this debate! :)
     
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